Justice Dept. opens criminal investigation of Enron collapse

Criminal investigation of Enron collapse opened

Published 6:30 am, Wednesday, January 9, 2002

WASHINGTON -- The U.S. Justice Department acknowledged Wednesday it has launched a criminal investigation into the epic fall of Houston's Enron Corp.

Attorneys from the Justice Department's fraud section, along with prosecutors from Houston, New York and San Francisco among other cities, will form a special task force to examine the collapse of the nation's seventh-largest company, a Justice official confirmed Wednesday.

The energy and trading giant sought protection from its creditors on Dec. 2, becoming the largest bankruptcy case in U.S. corporate history.

For weeks, the Justice Department has been known to be looking into the Enron debacle, as have the Securities and Exchange Commission, the Labor Department and a host of congressional panels.

"This is basically an issue of national scope," said the Justice official, who asked not to be identified. "Because there have been so many questions about this and because there has been so much interest, we are simply acknowledging the investigation."

"There will be a unification and a structure to the investigation," Bennett said. "We won't have to deal with six or seven different offices."

Since the company's dizzying fall, Enron has been overwhelmed by a blizzard of lawsuits, investigations and subpoenas.

On Wednesday, the Senate Banking Committee became the sixth congressional panel to jump into the swirl of Enron investigations.

Responding to fiascoes at companies such as Enron and Houston trash hauler Waste Management, the committee, headed by Sen. Paul Sarbanes, D-Md., plans to hold a hearing Feb. 12 to examine accounting and investor protections.

Waste Management, which was accused of inflating corporate earnings, agreed in November to pay $457 million to settle a class-action suit. Andersen, Waste Management's auditor, agreed to pay a $7 million SEC fine and another $20 million to Waste Management shareholders for failing to catch the company's accounting excesses.

Sarbanes' committee plans to call five former SEC heads to suggest ways to avoid future debacles.

"Enron is not the sole focus of the hearing," said Sarbanes' spokesman, Jesse Jacobs.

Lawmakers have been clamoring for Enron Chief Executive Ken Lay and other Enron executives to appear before their panels, and they have vowed to subpoena them unless they agree to come voluntarily.

Lay has promised to appear Feb. 4 before the Senate Subcommittee on Consumer Affairs.

Prior to the company's collapse, Lay, a longtime supporter of President Bush, was one of the most politically influential businessmen in America with relatively easy access to the Bush White House.

On Tuesday, Rep. Henry Waxman, D-Calif., released a letter from Vice President Dick Cheney's office detailing six meetings between Enron executives and White House officials over an eight-month period.

"The Washington scandal machine is being pumped up, and everybody for their own reasons wants a piece of the action," said Bennett, who represented former President Clinton in the Paula Jones sexual harassment case.

"There's an unfortunate rush to judgment here," Bennett said. "Hopefully, people will calm down a little bit and let these investigations proceed."

Enron's breathtaking collapse began in October, when the company revealed that $1.2 billion worth of shareholder equity had evaporated, largely because of the accounting treatment of some off-balance-sheet joint ventures.

That news shook investor confidence in the company and began a free-fall of the company's stock.

Joseph Berardino, head of Enron's outside auditor Andersen, told a House panel last month Enron officials failed to provide examiners with required information and may have committed "possible illegal acts."

Enron employees and retirees have complained loudly about the loss of retirement funds because of the company's collapse. Participants in the company's 401(k) retirement plan were barred from selling their Enron shares just as the stock was nosediving because of management's decision to change plan administrators.

The Justice Department's revelation about the criminal investigation task force comes just as Enron is scheduled today to hold an auction for a majority stake in the company's most lucrative operation, its trading business.

Three firms, including Citigroup and UBS Warburg, submitted proposals Monday to take control of the trading operation. Other companies could join the bidding today in what industry analysts say could be a billion-dollar transaction.